German Government Reduces Company Tax

The German government adopted the plan to reduce company tax on Wednesday.

This plan would reduce the overall company tax below the 30 percent level compared to the present 38.65 percent, in order to preserve the companies' ability to compete on the market and to stimulate investments.

The plan provides for the tax rate reduction on the big companies' profit to 15 percent, compared to the current 25 percent. These companies also pay the corporate tax to local government units and each German federal state determines its own tax rate.

On the other hand, Berlin intends to obtain the means to implement this plan and prevent companies' attempts to move their earnings abroad by limiting their ability to deduct interest costs from their tax duties.

The Ministry of Finance expects the plan to result in a decline of income in the amount of almost 6.5 billion euros in the first year of its implementation. The tax reform should come into effect on January 1, 2008.